Additional information to the extended consolidated financial report of the TAURON Group for the third quarter of 2011 9 November 2011
Table of Contents 1. Organisation of the TAURON Capital Group...4 1.1. Basic Information on the Group... 4 1.2. Entities subject to consolidation... 5 1.3. Structure of the Capital Group consolidated companies... 6 1.4. Effects of changes in the Company and the Capital Group structure... 7 2. Operations of the TAURON Capital Group... 10 2.1. Main areas of operations... 10 2.2. Significant achievements and failures of the TAURON Capital Group in the reporting period... 11 2.2.1. Structure of sales by segments... 11 2.2.2. Implementation of the investment programme... 14 2.2.3. Concluding of significant contract with ArcelorMittal Poland S.A.... 14 2.2.4. Concluding of preliminary contract on purchase of shares of Górnośląski Zakład Elektroenergetyczny S.A.... 14 2.2.5. Purchase of the Lipniki wind farm... 14 2.2.6. Acquiring of preferential financing from the European Investment Bank... 14 2.2.7. Increase of the value of corporate bonds programme... 15 3 Analysis of assets and financial situation of the Capital Group... 15 3.1 Financial situation of the Capital Group after the third quarter of 2011... 15 3.1.1. Consolidated statement on comprehensive income... 15 3.1.2. Financial results according to areas of operations... 17 3.2. Status of assets... 21 3.3. Cash Flows... 22 3.4. Factors and events of significant impact on financial results, particularly events of unusual character... 23 3.5. Factors which, according to the opinion of the Issuer, may have impact on the results to be achieved within the perspective of at least the next quarter... 23 3.6. Standpoint of the Management Board concerning possibility to implement forecasts of results for the year as published earlier... 24 4 Shares and Shareholders... 24 4.1. Shareholders holding at least 5% of the total number of votes... 24 4.2. Specification of the status of shares held by members of the management and supervisory bodies... 25 5 Other relevant information and events... 26 5.1. Affirmation of the rating for the Company by the Fitch Rating Agency... 26 5.2. Joining the special purpose vehicles CC Poland Plus sp. z o.o. and Pierwiastki i Surowce Krytyczne sp. z o.o.... 26 5.3. Fulfilment of the precedent condition to the gas contract with PGNiG S.A.... 27 5.4. Participation in privatisation process of ZEW Niedzica S.A.... 27 5.5. Concluding of annex to material agreement with Kompania Węglowa S.A.... 27 5.6. Convening of Extraordinary General Meeting... 28 5.7. Proceedings pending in the court, competent arbitration authority or public authority... 28 5.8. Information on transactions with related entities... 28 5.9. Information on extended guarantees, credit or loan sureties... 28 2
5.10. Other information which, according to the Issuer s opinion, is essential for the evaluation of the human resources, assets, financial situation, financial result and their changes, and which is essential to assess the possibility of fulfilment of obligations by the Capital Group of the Issuer... 28 5.10.1 Macroeconomic situation... 28 5.10.2 Termination of long-term contracts... 29 5.10.3 Basic data on power generating companies of the TAURON Group subject to the LTC Act... 29 5.10.4 Market position... 29 5.10.5 Potential... 29 5.10.6 National Allocation Plan on Emission Allowances for the years 2008-2012... 29 3
1. Organisation of the TAURON Capital Group 1.1. Basic Information on the Group As of 30 September 2011, the Capital Group TAURON Polska Energia S.A. consisted of the parent entity - TAURON Polska Energia S.A. (hereinafter referred to as the Company, the Issuer or TAURON) 40 subsidiaries (direct and indirect), 16 affiliates with the share between 50% - 20% shares and 27 other companies. The main companies subject to consolidation included: Południowy Koncern Węglowy S.A. dealing with hard coal mining, TAURON Wytwarzanie S.A. dealing with generation of power from conventional sources and biomass co-burning, TAURON Ekoenergia sp. z.o.o. dealing with generation of power from renewable sources, TAURON Dystrybucja S.A. providing electric energy distribution services, TAURON Sprzedaż sp. z.o.o. dealing with supply of electric energy to retail customers, TAURON Obsługa Klienta sp. z.o.o., dealing with customer service and TAURON Ciepło S.A. providing heat distribution services. Furthermore, the TAURON Capital Group consisted of eight other subsidiaries, subject to consolidation, involved, among others, in generation of electric energy and heat, trade of electricity and heat, extraction, crushing and grinding of limestone as well as extraction of stone for construction purposes. On 12 October 2010, in order to improve performance of the TAURON Group, perceived as a single economic entity consisting of autonomous commercial law companies, the Management Board of TAURON Polska Energia S.A. established the TAURON Group, comprising the aforementioned companies and TAURON Polska Energia S.A, and adopted the TAURON Group Code as the underlying normative act of the TAURON Group operations. As of the date of adoption of the Resolutions on accession to the TAURON Group by the General Meeting/ General Meetings of Shareholders, companies listed in Table 1 gained the status of TAURON Group members. Table no. 1. List of subsidiaries included in the TAURON Group (as of 30 September 2011) Item Name of the Company Date of accession to the TAURON Group 1. TAURON Sprzedaż sp. z o.o. 26.10.2010 2. TAURON Obsługa Klienta sp. z o.o. 26.10.2010 3. TAURON EKOENERGIA sp. z o.o. 26.10.2010 4. TAURON Wytwarzanie S.A. (former: Południowy Koncern Energetyczny S.A.) 28.10.2010 5. Elektrociepłownia EC Nowa sp. z o.o. 04.11.2010 6. TAURON Czech Energy s.r.o. 10.11.2010 7. Elektrociepłownia Tychy S.A. 22.11.2010 8. Polska Energia - PKH sp. z o.o. 29.11.2010 10. TAURON Dystrybucja S.A. (former: EnergiaPro S.A.) 06.12.2010 11. TAURON Ciepło S.A. (former: PEC Katowice S.A.) 09.12.2010 14. Kopalnia Wapienia Czatkowice sp. z o.o. 05.01.2011 15. Południowy Koncern Węglowy S.A. 13.01.2011 The TAURON Group Code adopted in the TAURON Group regulates the functionality of the Group, ensuring fulfilment of the targets through tailor-made solutions related to management of the TAURON Group entities, including in particular definition of objectives of the companies operations, allowing for accomplishment of the assumed outcomes. 4
Simultaneously, on 12 October 2010, in order to provide for effective management of the TAURON Group, the Management Board of TAURON Polska Energia S.A. adopted resolutions on creating of Business Areas, on membership of individual companies included in the TAURON Group in respective Business Areas as well as on establishment of Management Areas within which relevant principles of cooperation are introduced. Another important element enabling providing for operational decisions within the TAURON Group, through the adoption of the TAURON Group s Code, was the creation of new opinion making and quasisupervisory bodies of the Group the four Committees of the TAURON Group: 1. Project Evaluation Committee, 2. TAURON Group Management Committee, 3. TAURON Group Compliance Committee, 4. TAURON Group Committee on Implementation of Corporate Strategy. The objective governing the establishment of the above Committees was to facilitate operations according to assumptions of operational consistency of the Group, in compliance with the laws and to the best interest of the TAURON Group and its stakeholders. The Committees perform the following functions: 1. Opinion-making for the TAURON Management Board, 2. Decision-making function, 3. Supervisory function for the management boards of the TAURON subsidiaries. The main task of the Committees is to monitor implementation of actions consistent with the TAURON Group s Code by all the participants of the Group, as well as for the advantage of the common interest of all TAURON Group members. The specific functions of the Committees are indicated in the by-laws on their operations adopted by the Management Board of TAURON Polska Energia S.A. 1.2. Entities subject to consolidation As of 30 September 2011, within the TAURON Capital Group, financial statements of fifteen subsidiaries listed below shall be covered by consolidation with the financial statement of the Company, by applying full consolidation method. The list of companies covered by full consolidation method is presented below: 1) TAURON Wytwarzanie S.A. with the seat in Katowice (hereinafter referred to as: TAURON Wytwarzanie), 2) TAURON Dystrybucja S.A. with the seat in Kraków (hereinafter referred to as: TAURON Dystrybucja), 3) TAURON Ciepło S.A. with the seat in Katowice (hereinafter referred to as: TAURON Ciepło), 4) Południowy Koncern Węglowy S.A. with the seat in Jaworzno (hereinafter referred to as: PKW), 5) TAURON Sprzedaż sp. z o.o. with the seat in Kraków (hereinafter referred to as: TAURON Sprzedaż), 6) TAURON Obsługa Klienta sp. z o.o. with the seat in Wrocław (hereinafter referred to as: TAURON Obsługa Klienta), 7) TAURON Czech Energy s.r.o. with the seat in Ostrava,Czech Republic (hereinafter referred to as: TAURON Czech Energy), 8) Elektrociepłownia Tychy S.A. with the seat in Tychy (hereinafter referred to as: Elektrociepłownia Tychy), 9) Elektrociepłownia EC Nowa sp. z o.o. with the seat in Dąbrowa Górnicza (hereinafter referred to as: Elektrociepłownia EC Nowa), 10) Kopalnia Wapienia Czatkowice sp. z o.o. with the seat in Krzeszowice (hereinafter referred to as: Kopalnia Wapienia Czatkowice), 11) Polska Energia Polska Kompania Handlowa sp. z o.o. with the seat in Katowice (hereinafter referred to as: PEPKH), 5
12) TAURON Ekoenergia sp. z o.o. with the seat in Jelenia Góra (hereinafter referred to as: TAURON Ekoenergia), 13) BELS INVESTMENT sp. z o.o. with the seat in Jelenia Góra (hereinafter referred to as: BELS INVESTMENT), 14) MEGAWAT MARSZEWO sp. z o.o. with the seat in Jelenia Góra (hereinafter referred to as: MEGAWAT MARSZEWO), 15) Lipniki sp. z o.o. with the seat in Wrocław (hereinafter referred to as: Lipniki). Moreover, the TAURON Capital Group performs consolidation of financial results (by application of the equity method) of investment in the joint venture - Elektrociepłownia Stalowa Wola S.A. with the seat in Stalowa Wola (hereinafter referred to as: EC Stalowa Wola). 1.3. Structure of the Capital Group consolidated companies The diagram below presents all the companies whose results are subject to consolidation within the TAURON Capital Group as of 30 September 2011. Notes: Direct share of Tauron Polska Energia S.A. in the share capital/ votes at General Meeting (WZ)/ Meeting of the Shareholders (ZW). Indirect share of Tauron Polska Energia S.A. in the share capital/ votes at General Meeting (WZ)/ Meeting of the Shareholders (ZW). 1 Tauron Polska Energia S.A. utilises shares owned by TAURON Wytwarzanie S.A., constituting 100% of shares in KW Czatkowice share capital, accounting for 100% of votes at ZW. 2 Tauron Polska Energia S.A. utilises shares owned by TAURON Wytwarzanie S.A., constituting 52.48% of shares in the PKW S.A. share capital, accounting for 68.01% of votes at WZ. In the third quarter of 2011, the following changes in the structure of the TAURON Capital Group subsidiaries took place: 1. On 26 July 2011 the contract between the Company and PKE S.A. (currently: TAURON Wytwarzanie) was concluded concerning disposal of shares of the company Polska Energia PKH sp. z o.o. (PEPKH), based on which the Company acquired 700 shares of PEPKH at par value of PLN 6,000 each, owned by PKE S.A. Consequently, the Company increased its direct share in the capital and in the governing body of PEPKH to 100%. 6
2. On 31 August 2011, the Company established the following single-person limited liability companies: a) Enpower sp. z o.o. with the seat in Katowice (date of entry to the National Court Register (KRS) 20 September 2011); b) Enpower Service sp. z o.o. with the seat in Katowice (date of entry to the National Court Register (KRS) 20 September 2011); c) Energopower sp. z o.o. with the seat in Stalowa Wola (date of entry to the National Court Register (KRS) 8 September 2011); d) Poen sp. z o.o. with the seat in Katowice (date of entry to the National Court Register (KRS) 20 September 2011); In each of the aforementioned companies, the Company took over 100 shares at par value PLN 50 each, which amounts to the aggregate nominal value of PLN 5,000 in each of the companies. 3. On 31 August 2011, the District Court for Katowice Wschód in Katowice, 8 th Commercial Department of the National Court Register issued its decision on merger of the company Południowy Koncern Energetyczny S.A. (acquiring company) and the company Elektrownia Stalowa Wola S.A. (acquired company) pursuant to art. 492 1 item 1 of the Code of Commercial Companies. Accordingly, the share capital of the acquiring company was increased from PLN 1,559,231,860 to PLN 1,662,622,990, i.e. by PLN 103,391,130. As a result of the aforementioned process, the share of the Company in the share capital and in the governing body of the acquiring company was increased from 99.46% to 99.49%. Simultaneously, as of 1 September 2011, the change of enterprise of the acquiring company to TAURON Wytwarzanie S.A. took place. 4. On 1 September 2011 the District Court for Wrocław Fabryczna in Wrocław, 6 th Commercial Department of the National Court Register issued its decision on merger of the company EnergiaPro S.A. (acquiring company) and the company ENION S.A. (acquired company) pursuant to art. 492 1 item 1 of the Code of Commercial Companies. Accordingly, the share capital of the acquiring company was increased from PLN 82,081,118.70 to PLN 167,748,363.81, i.e. by PLN 85,667,245.11. As a result of the aforementioned process, the share of the Company in the share capital and in the governing body of the acquiring company was increased from 99.00% to 99.38%. Simultaneously, as of 1 September 2011, the change of enterprise of the acquiring company to TAURON Dystrybucja S.A. took place. 5. On 1 September 2011 the District Court for Katowice Wschód in Katowice, 8 th Commercial Department of the National Court Register issued its decision on merger of the company PEC Katowice S.A. (acquiring company) and the company PEC in Dąbrowa Górnicza S.A. (acquired company) pursuant to art. 492 1 item 1 of the Code of Commercial Companies. Accordingly, the share capital of the acquiring company was increased from PLN 211,000,000 to PLN 444,663,500, i.e. by PLN 233,663,500. As a result of the aforementioned process, the share of the Company in the share capital and in the governing body of the acquiring company was decreased from 95.66% to 90.06%. Simultaneously, as of 1 September 2011, the change of enterprise of the acquiring company to TAURON Ciepło S.A. took place. 6. On 28 September 2011 the company TAURON EKOENERGIA sp. z o.o. acquired 400,000 shares (i.e. the total number of shares) of the company Lipniki sp. z o.o. with the seat in Wrocław, holding the wind farm of Lipniki. 1.4. Effects of changes in the Company and the Capital Group structure Below, effects of changes in the structure of the TAURON Capital Group are presented, including those resulting from merger of business entities, acquisition or sales of entities of the issuer s capital group, long-term investment, division, restructuring and discontinuation of operations. Increase of shares in the company Polska Energia Pierwsza Kompania Handlowa sp. z o.o. On 26 July 2011 the contract was concluded between Południowy Koncern Energetyczny S.A. and TAURON Polska Energia S.A., concerning disposal of shares of the company Polska Energia Pierwsza Kompania Handlowa sp. a o.o. as the benefit to fulfil part of the liability of Południowy 7
Koncern Energetyczny S.A. to disburse the dividend payable to TAURON Polska Energia S.A. for the financial year ended on 31 December 2010. Południowy Koncern Energetyczny S.A. disposed of all the shares held in Polska Energia Pierwsza Kompania Handlowa sp. z o.o., i.e. 700 shares at total nominal value of PLN 4,200, for the total amount of PLN 42,170 thous. The value of shares purchased was determined based on valuation as of 20 June 2011. On 26 July 2011 the transfer of shares to the Company was performed. As a result of this transaction, TAURON Polska Energia S.A. increased its direct share in the capital and governing body of this company to 100%, which influenced the decrease of non-controlling shares, and simultaneously, the increase of retained earnings by the amount of PLN 213 thousand. Preliminary contract on purchase of Górnośląski Zakład Elektroenergetyczny S.A. On 23 August 2011, TAURON Polska Energia S.A. and Vattenfall AB signed preliminary contract on purchase of 1,249,693 of shares constituting 99.98% of the share capital of the company Górnośląski Zakład Elektroenergetyczny S.A. (GZE S.A.). According to the contract, the purchase price of the shares shall amount to PLN 4,625,955 thousand, with the reservation that the amount of maximum PLN 3,625,955 thousand shall be paid in cash, while the amount of at least PLN 1,000,000 thousand shall constitute the equivalent of the debt towards GZE S.A. and its subsidiaries taken over by TAURON Polska Energia S.A. from Vattenfall AB on the day of closing of the trade. In case of failure to close the trade before the end of this year, as of 1 January 2012, until the date the trade is closed, part of the purchase price (without the final value of the debt) shall be subject to adjustment, according to the interest rate of 6% p.a. In accordance with the contract, on 26 August 2011, TAURON Polska Energia S.A. performed payment of deposit for the benefit of Vattenfall AB at the value of PLN 120,000 thousand. The above mentioned deposit, increased by the accrued interest shall be credited against purchase price on the day the trade is closed. As a result of purchase of the shares, GZE S.A., TAURON Polska Energia S.A. shall become the holder of stocks of shares, respectively, of the following major entities dependant on GZE S.A., i.e.: Vattenfall Distribution Poland S.A., Vattenfall Sales Poland sp. z o.o., Vattenfall Network Services Poland sp. z o.o., Vattenfall Wolin-North sp. z o.o., and Vattenfall Business Services Poland sp. z o.o., which will be purchased by GZE S.A. on the date the trade is closed. Closing of the transaction has been assumed as dependable on TAURON Polska Energia S.A. obtaining the approval of the President of UOKiK (Office of Competition and Consumer Protection) on concluding of the amalgamation. The parties set the maximum deadline to meet the above condition on 23 May 2012, assuming that in case of conditional decision of the President of UOKiK, permitting the transaction and the appeal of TAURON Polska Energia S.A. against such decision, the aforementioned deadline shall be extended and the transaction will be possible to close until 31 July 2013. On 20 September 2011, the Company notified UOKiK and announced its intention to merge with GZE S.A. Currently, proceedings at UOKiK on this matter are on-going. If the transaction under discussion is completed successfully, the TAURON Group shall strengthen its position as a leading energy distributor in the southern Poland. Accordingly, the number of end consumers will increase as well as the volume of electric energy distributed and sold. Additionally, this transaction should generate synergies resulting from integration of the assets to be acquired. The transaction on acquisition of GZE S.A. shares was described in detail in the current report no. 44/2011 of 23 August 2011. Merger of subsidiaries In connection with the reorganisation of the Group structure, in the third quarter of 2011, significant mergers of subsidiaries took place. On 31 August 2011, the merger of the company Południowy Koncern Energetyczny S.A. (acquiring company) and the company Elektrownia Stalowa Wola S.A. (acquired company) was entered in the National Court Register. On 1 September 2011, the enterprise name was changed from Południowy Koncern Energetyczny S.A. to TAURON Wytwarzanie S.A. 8
On 1 September 2011, the merger of the company EnergiaPro S.A. (acquiring company) and company ENION S.A. (acquired company) was entered in the National Court Register. Simultaneously, the enterprise name was changed from EnergiaPro S.A to TAURON Dystrybucja S.A. On 1 September 2011, the merger of the company Przedsiębiorstwo Energetyki Cieplnej Katowice S.A. (acquiring company) and Przedsiębiorstwo Energetyki Cieplnej in Dąbrowa Górnicza S.A. (acquired company). Simultaneously, the enterprise name was changed from Przedsiębiorstwo Energetyki Cieplnej Katowice S.A. to TAURON Ciepło S.A. The acquisition of the aforementioned companies was performed by merger through acquisition, i.e. pursuant to art. 492 1 item 1 of the Code of Commercial Companies, by transfer of the whole assets of the acquired company to the acquiring company in exchange for the shares of the acquiring company, which were not issued to the shareholders of the acquired company. As a result of the merger, the acquired companies were dissolved without liquidation. The mergers performed affected the decrease of non-controlling shares by the amount of PLN 8,076 thousand, and the increase of the retained earnings by the amount of PLN 8,039 thousand. Share repurchase During the three quarters of 2011, in the capital Group TAURON Polska Energia S.A., processes of repurchase of treasury shares was continued, with the purpose of their redemption by companies: TAURON Wytwarzanie S.A. (including, before the date of the merger, by Południowy Koncern Energetyczny S.A. and Elektrownia Stalowa Wola S.A.), TAURON Dystrybucja S.A. (including, before the date of the merger, by ENION S.A. and EnergiaPro S.A.), Elektrociepłownia Tychy S.A., as well as, before the date of the merger by Przedsiębiorstwo Energetyki Cieplnej Katowice S.A. As a result of repurchase of treasury shares, during the three quarters of 2011, the value of noncontrolling shares decreased by the amount of PLN 34,968 thousand, while the retained profit increased by PLN 13,981 thousand. Purchase of non-controlling shares In August 2011, TAURON Polska Energia S.A. purchased shares from the following non-controlling shareholders: 9,477 shares of Południowy Koncern Energetyczny S.A., currently TAURON Wytwarzanie S.A., at the par value of PLN 10 each, constituting 0.0061% of the share capital of this company, at the price of PLN 235 thousand, 6,149,541 shares of ENION S.A., currently TAURON Dystrybucja S.A., at the par value of PLN 0.01 each, constituting 0.0245% of the share capital of this company, at the price of PLN 676 thousand. The fee for the shares purchased was paid in August 2011. As a result of the purchase of shares, the value of non-controlling shares decreased by the amount of PLN 1,104 thousand, while the retained profit increased by PLN 192 thousand. Purchase of the special purpose vehicle Lipniki sp. z o.o. On 28 September 2011 TAURON Ekoenergia sp. z o.o acquired 100% of shares of the company Lipniki sp. z o.o., including the wind farm, from the German energy concern WSB Neue Energien GmbH. Lipniki sp. z o.o. is the special purpose vehicle which was created to construct and operate the wind park Lipniki including 15 wind turbines of the total capacity of 30.75 MW. The wind park in Lipniki was launched in July 2011 and it is located in the south-western part of the Opole Province, within the municipality of Kamiennik (Nysa district). The purchase price was established at PLN 91,560 thousand which covers the refundable contributions allocated by the seller in Lipniki sp. z o.o. at the amount of PLN 19,358 thousand. As a result of the purchase transaction of the company 9
Lipniki sp. z o.o., in the ledgers, the goodwill occurred at the amount of PLN 51,576 thousand. The Lipniki wind park is the first wind farm within the structure of TAURON Group. 2. Operations of the TAURON Capital Group 2.1. Main areas of operations The TAURON Capital Group is a vertically integrated utility enterprise holding the leading position in generation, distribution and supply of electricity in Poland. It belongs to the largest distributors and suppliers of electricity, both in Poland and in Central and Eastern Europe. The TAURON Capital Group is also the second largest utility company in Poland in terms of installed power capacity and net energy production volume. The TAURON Capital Group conducts its operations in the following areas (Segments): Mining Segment, comprising mainly mining, preparation and sales of hard coal in Poland., the activity provided by PKW. Through PKW the TAURON Capital Group directly owns and runs Zakład Górniczy Sobieski and Zakład Górniczy Janina. Generation Segment, comprising mainly generating of electric energy and heat from conventional sources, as well as generating of electric power and heat using biomass co-burning, the activity provided by TAURON Wytwarzanie (the company was established through merger of Południowy Koncern Energetyczny and Elektrownia Stalowa Wola), Elektrociepłownia Tychy and Elektrociepłownia EC Nowa. The total achievable installed power of the generating units of the Generation Segment reached 5,448 MW of electric energy at the end of September 2011 (i.e. the level remained unchanged as compared to 2010, accounting for 15.3% of the national generating potential) and 3,200 MW of heat. RES Segment, comprising generating electric energy from renewable sources (excluding generation of electric energy using biomass co-burning which is covered by the Generation Segment), as well as managing of the TAURON Group Projects in the area of energy generating from other renewable energy sources. This activity is provided by TAURON Ekoenergia and the companies BELS INVESTMENT and MEGAWAT MARSZEWO acquired in 2010, as well as by the company Lipniki, acquired in 2011. In the RES Segment, 35 hydropower plants operate of total achievable capacity of 131.7 MW, accounting for 2.4% of total achievable capacity of the TAURON Capital Group. Distribution Segment, covering distribution of electric energy using distribution networks located in southern Poland, the activity provided by TAURON Dystrybucja (a company established through merger of Enion and EnergiaPro). The TAURON Capital Group belongs to the largest electricity distributors in Poland, both in terms of volume of the supplied electric energy and revenue from distribution activity. Trade Segment, comprising sales of electric energy to end-customers and wholesale trading of electric energy, as well as trading and management of CO 2 emission allowances and the proprietary rights arising from the energy certificates. Activities in this area are provided by the companies: TAURON Sprzedaż, PEPKH, TAURON Czech Energy and TAURON Polska Energia. The company dealing with customer service (trading company and DSO segment) - TAURON Obsługa Klienta, is also included in this area. Other Segment, comprising mainly distribution and sales of heat (provided by the company TAURON Ciepło established through the merger of PEC Katowice and PEC in Dąbrowa Górnicza), as well as other activities in the area of extraction of stone, including limestone, for power industry, metallurgy, construction and road building as well as production of sorbents for flue gas desulphurization installations using the wet method and for the use in the fluidized bed boilers (provided by the company Kopalnia Wapienia Czatkowice sp. z o.o.). According to the status as of 10
30 September 2011, the total achievable capacity of generating assets of TAURON Ciepło reached 188 MWt, accounting for about 5.5% of the achievable heat capacity of the TAURON Capital Group. The TAURON Capital Group conducts its operations and acquires its revenues mainly from generating, trade and distribution of electric energy and heat as well as from sales of hard coal. During three quarters of 2011 and in the third quarter of 2011 the TAURON Group reached the following key operating parameters: Key operating parameters unit QI - QIII 2011 QI - QIII 2010 Change QIII 2011 QIII 2010 Change Production of commercial coal M Mg 3.78 3.38 11.8% 1.18 1.17 0.9% Generation of electric energy (net production of the Group), including : TWh 16.30 15.54 4.9% 5.09 5.33-4.5% Net production of Generation Segment TWh 15.98 15.17 5.3% 4.97 5.19-4.2% Net production of RES Segment TWh 0.32 0.38-15.8% 0.12 0.14-14.3% Generation of electric energy from renewable sources, including: Production from biomass of the Generation Segment Production of hydropower plants of the RES Segment TWh 0.77 0.85-9.8% 0.31 0.32-4.3% TWh 0.45 0.47-4.3% 0.19 0.18 5.6% TWh 0.32 0.38-15.8% 0.12 0.14-14.3% Heat generation by the Group, including: PJ 10.39 11.80-11.9% 0.99 1.28-22.7% Heat Production by Generation Segment PJ 9.82 11.14-11.8% 0.96 1.22-21.3% Heat production by "Other Segment PJ 0.57 0.66-13.6% 0.03 0.06-50.0% Distribution of electric energy TWh 28.82 27.94 3.1% 9.41 9.18 2.5% Retail sales of electric energy TWh 27.11 25.39 6.8% 8.54 8.54 0.0% Number of customers - Distribution thou. 4 137 4 129 0.2% 4 137 4 129 0.2% 2.2. Significant achievements and failures of the TAURON Capital Group in the reporting period 2.2.1. Structure of sales by segments The table below presents volumes and structure of sales of the TAURON Capital Group, divided into individual areas (segments) of operations for the period of Quarters I-III of 2011 as well as for the third quarter of 2011, compared to corresponding periods of 2010. Specification [Unit] QI - QIII 2011 QI - QIII 2010 Change Q III 2011 Q III 2010 Change Mining Segment - sales of coal M Mg 3.77 3.41 10.6% 1.20 1.18 1.7% Electric energy and heat Generation Segment - sales of electric energy and heat from conventional sources RES Segment - sales of electric energy generated in hydroelectric power plants TWh 18.40 15.76 16.8% 5.85 5.36 9.1% PJ 9.15 10.42-12.2% 0.87 1.12-22.3% TWh 0.32 0.38-15.8% 0.12 0.14-14.3% 11
Specification [Unit] QI - QIII 2011 QI - QIII 2010 Change Q III 2011 Q III 2010 Change Distribution Segment - sales of electricity distribution services TWh 28.82 27.94 3.1% 9.41 9.18 2.5% Trade Segment of electric energy and other products of the energy market - retail sales of electric energy Other Segment - sales of heat, purchased and generated TWh 27.11 25.39 6.8% 8.54 8.54 0.0% PJ 5.96 7.01-15.0% 0.33 0.59-44.1% Coal mining In the three quarters of 2011, the Generation Segment produced the total amount of almost 3.8 million tonnes of commercial coal, i.e. by about 11.8% more as compared to the corresponding period of 2010 when the production of commercial coal reached about 3.4 million tonnes. In the third quarter of 2011, the level of coal production reached about 1.2 million tonnes and it was higher by about 1% than in the third quarter of 2010 r. In the third quarter of both 2011 and 2010, temporary limitations of coal extractions level occurred due to difficult mining and geological conditions. The volume of coal sales in the third quarter of 2011 amounted to about 1.2 million tonnes which makes an increase by almost 2%, as compared to the corresponding period of 2010. In cumulative terms, during the three quarters of 2011 sales of commercial coal amounted to almost 3.8 million ton (over 10% increase y/y), which is connected with the growing demand of consumers, particularly in terms of thick and medium coal size. In spite of significant growth as compared to the last year, the level of sales in the third quarter of 2011 was not high, as a result of production capacity limitations occurring in this period due to temporary difficulties in underground works, caused by increased water inflow from selected areas of extraction zone. These problems imposed the extension of dewatering system as well as construction of additional strengthening of the wall. Generating electric energy and heat from conventional sources In the first three quarters of 2011, the companies of the Generation Segment produced jointly about 16.0 TWh (including about 0.45 TWh from biomass) net of electric energy, which makes approx. 5.3% more than in the corresponding period of the previous year (almost 15.2 TWh, including approx. 0.47 TWh from biomass), as well as about 9.8 PJ of heat, against about 11.1 PJ in the corresponding period of 2010 r., i.e. less by about 12%. The increased level of electric energy production in Poland is the consequence of the growing demand of consumers, particularly in the first half of this year, expressed by increased level of sales, which corresponds to the higher electricity consumption in Poland in the analysed period. Lower production of electric energy from biomass is the consequence of limitations in agro type biomass supply this year and non-compliance with the legal requirement of 40% agro biomass share in the aggregate biomass (in 2010 the mandatory share was 25%). On the other hand, the decreased level of heat production results from lower demand of heat consumers, due to shorter winter season and higher ambient temperatures, maintaining particularly in September this year, as compared to different conditions in the corresponding period of last year. In the first three quarters of 2011, the Generation Segment of the TAURON Capital Group achieved the electric energy sales volume at the level of about 18.4 TWh, which makes the increase by about 17 % as compared to 15.8 TWh of the corresponding period of the previous year. The quarterly volume of electric energy sold by the Generation Segment increased by about 0.5 TWh (by 9%), from ab. 5.4 TWh in the third quarter of 2010 to over 5.9 TWh in the third quarter of 2011, which is the result of higher demand for electric energy in the National Electric Power System as well as increased activity on the power market due to the amendments (since 9 August 2010) to the Act of 10 April 1997 Energy Law, according to which energy generators are obliged to sell a part or total (in the case of TAURON Wytwarzanie, as the beneficiary of the Act on premature long-term contracts termination) volume of electricity (except electric energy generated from RES and in congregation) so as 12
to ensure equal public access to this energy. Accordingly, most of the electric energy produced is currently traded at the Polish Power Exchange (before amendment to the Law, almost the entire volume of production was sold within the Group). Generating electric energy from renewable sources The volume of electric energy generated in hydroelectric power plants and supplied through the companies of the RES Segment of the TAURON Group in the first three quarters of 2011 was lower than in the corresponding period of 2010 reaching 0.32 TWh (against 0.38 TWh in 2010). The achieved level of energy production from RES was mainly due to standard hydrological conditions, as compared to particularly favourable conditions for production of hydroelectric power plant last year. In the analysed period of three quarters of 2011, short-term intensive rainfall in the period of spring vegetation and longer rainless periods resulted in lack of runoff of rainfall water to rivers and reservoirs, causing significantly lower energy production than in 2010. On the other hand, statistically higher precipitation and ambient temperature in the third quarter of 2011 caused decreased evaporation and increased runoff of rainfall water, which allowed for reaching higher level of energy production than in the previous quarters, nevertheless, this level was 0.12 TWh in Q III of this year, being slightly lower that that achieved in the corresponding period of last year (0.14 TWh). Electric energy distribution The volume of electric energy supplied to about 4,137 thousand consumers by the companies of the Distribution Segment of the TAURON Group increased by approximately 0.9 TWh, which means by over 3%, from approximately 27.9 TWh in the period of three quarters of 2010 (against approx. 9.2 TWh in the third quarter of 2010 ) to approx. 28.8 TWh in the period of three quarters of 2011 (approx. 9.4 TWh in the third quarter of 2011), which was associated with the increased demand for electric energy supply of current customers and acquiring of new customers connected to the network. The increase in sales referred mainly to enterprises of WN and SN tariff groups. In the group nn customers the downward trend was observed (by 2.2%), with the dominating share of households (decrease of supply by 3.2%) Sales of energy and other products of the energy market The volume of retail sales of electric power by companies of the Trade Segment of the TAURON Group increased by approximately 1.7 TWh, year by year, i.e. by about 7%, from about 25.4 TWh in the three quarters of 2010 to about 27.1 TWh in the same period of 2011. The reasons of the increase in sales are identical to those for the Distribution Segment and result from increased demand for electric energy as well as from acquisition of new electric energy consumers for the Group. The increase in electricity consumption was observed particularly in B and C tariff groups. the level of surrender in these groups was lower than expected, which makes the positive effect of the adopted sales strategy. In G group, compared to the corresponding period of 2010, a slight decrease in the average energy consumption was observed, which resulted in smaller sales volume in this group, despite higher number of customers. In the third quarter of 2011 companies of the Trade Segment sold jointly over 8.5 TWh of electric energy to about 4.1 million of end clients (both households and enterprises), which constituted the level comparable to the corresponding period of 2010. Other operations The volume of heat sold by heat companies, coming from purchasing and production in own heating plants decreased by about 1 PJ, i.e. by over 15%, from approximately 7 PJ in the first three quarters of 2010 (approx. 0.6 PJ in the third quarter of 2010) to approx. 6 PJ in the period of three quarters of 2011 (approx. 0.3 PJ in the third quarter of 2011). The decrease of operating parameters is associated with higher average ambient temperature in the analysed period of this year which affected lower demand for heat, as compared to corresponding period of 2010, particularly in the third quarter of this year 13
2.2.2. Implementation of the investment programme In the period of quarters I-III of 2011, activities associated with implementation of the investment programme proceeded. Capital expenditure of the TAURON Capital Group in this period amounted to almost PLN 1,401 million being higher by about 62% than the expenditure incurred in the corresponding period of last year, which amounted to over PLN 865 million. This was mainly caused by intensification of strategic investment in the segments of Generation and Distribution. The main investment during the three quarters of 2011 included expenditure for: construction of new power generation capacity (PLN 255 million), construction of new service lines in the Distribution Segment (PLN 233 million), and construction of underground technical infrastructure in the Mining Segment (approx. PLN 50 million). 2.2.3. Concluding of significant contract with ArcelorMittal Poland S.A. On 25 July 2011 the significant agreement was concluded between EC Nowa (EC Nowa) and ArcelorMittal Poland S.A. (ArcelorMittal) covering the following scope: - sales of energy carriers by EC Nowa to ArcelorMittal, such as: wind of blast furnace, electric energy, compressed air and heat, - purchase of gas fuel by EC Nowa from ArcelorMittal, such as: blast furnace gas, coal gas and convector gas, - establishment of the principles of settlements between EC Nowa and ArcelorMittal concerning the CO 2, emission, - implementation of investment by EC Nowa involving modernisation of the OPG 430 boiler and construction of turbo generator of 50 MW capacity (Investment) as well as specifying the conditions for achievement of return on investment resulting from the contract under consideration. The contract was concluded for the period of 65 months. The estimated value of this contract during its entire effective period was determined at the level of about PLN 2.13 billion. The amount of PLN 2.13 billion covers both the estimated revenue of EC Nowa due to sales of the aforementioned energy carriers (about PLN 1.56 billion), as well as estimated costs of EC Nowa resulting from purchase of gas fuel from ArcelorMittal (about PLN 0.57 billion). 2.2.4. Concluding of preliminary contract on purchase of shares of Górnośląski Zakład Elektroenergetyczny S.A. On 23 August 2011, TAURON Polska Energia S.A. and Vattenfall AB signed preliminary contract on purchase of 1,249,693 of shares constituting 99.98% of the share capital of the company Górnośląski Zakład Elektroenergetyczny S.A. Detailed information on this contract is included in section 1.4 The Effects of changes in the Company and the Capital Group structure. 2.2.5. Purchase of the Lipniki wind farm On 28 September 2011 the company TAURON Ekoenergia sp. z o.o acquired 100% of shares of the company Lipniki sp. z o.o., including the wind farm, from the German energy concern WSB Neue Energien GmbH. Detailed information on purchase of the aforementioned shares by the Company is included in section 1.4 The Effects of changes in the Company and the Capital Group structure. 2.2.6. Acquiring of preferential financing from the European Investment Bank On 24 October 2011 the Company acquired two preferential loans from the European Investment Bank (EBI) at the total value of PLN 510 million, including: a) PLN 300 million (ab. EUR 76 million) to finance restructuring and commissioning of high performance coal-fired unit in cogeneration, with the accompanying infrastructure in ZEC in Bielsko- Biała. Due to the funds acquired, the current unit will be replaced by the block of higher capacity amounting to 50 MWe and 182 MWt. The new unit will present efficiency at the level of 90 per cent, as 14
compared to 60 per cent of the current unit. Fuel savings of the new unit was estimated at over 25 per cent. Construction of the block was commenced in August 2010 and it is conducted by Polimex- Mostostal. Implementation of the project shall continue until mid - 2013. b) PLN 210 million (ab. EUR 53 million) to support construction and commissioning of the new biomass-fuelled boiler of 50 MWe and 45 MWt in Elektrownia Jaworzno III as well as renovation of the steam turbine. Construction of the boiler is conducted by consortium Rafako and Omis. The commissioning is scheduled in 2012. 2.2.7. Increase of the value of corporate bonds programme On 28 October 2011, the contract was concluded between the Company and Bank Handlowy w Warszawie S.A., ING Bank Śląski S.A., Bank Polska Kasa Opieki S.A., BRE Bank S.A., Powszechna Kasa Oszczędności Bank Polski S.A., Nordea Bank Polska S.A., Nordea Bank AB, on the basis of which the value of bond programme of TAURON Polska Energia S.A. was increased by tranche C at the value of PLN 3 billion, i.e. to the total amount of PLN 4.3 billion. The funds to be acquired by issue of bonds within tranche C will be allocated on financing of acquisition of Górnośląski Zakład Elektroenergetyczny S.A. from Vattenfall AB, or to implement other investment carried out by the TAURON Capital Group (in case of failure of the acquisition of GZE S.A.).Detailed information on terms and conditions of the programme was published in the current report no. 53/2011 of 28 October 2011. 3 Analysis of assets and financial situation of the Capital Group 3.1 Financial situation of the Capital Group after the third quarter of 2011 3.1.1. Consolidated statement on comprehensive income The table below presents selected items of the consolidated statement on comprehensive income of the TAURON Capital Group for the period of 9 months, ended on 30 September 2011 as well as comparative data for the period of 9 months ended on 30 September 2010. These items have been referred to in accordance with the interim condensed consolidated financial report compliant with the IFRS (International Financial Reporting Standards) for the period of 9 months ended on 30 September 2011, which includes presentation of the statements for the periods of 3 and 9 months ended on 30 September 2011, compared to the corresponding periods ended on 30 September 2010. Specification Continuing operations Sales of goods for resale, finished goods and materials without elimination of excise Q I-III 2011 Q I-III 2010 Q III 2011 Q III 2010 Thousand PLN % of total revenue on sales Thousand PLN % of total revenue on sales Thousand PLN % of total revenue on sales Thousand PLN % of total revenue on sales 11 925 866 79% 7 864 450 72% 3 806 417 79% 2 682 949 73% Excise tax (312 140) 2% (313 477) 3% (86 613) 2% (103 783) 3% Sales of goods for resale, finished goods and materials 11 613 726 77% 7 550 973 69% 3 719 804 77% 2 579 166 70% Rendering of services 3 522 199 23% 3 379 668 31% 1 105 234 23% 1 104 706 30% 15
Specification Q I-III 2011 Q I-III 2010 Q III 2011 Q III 2010 Thousand PLN % of total revenue on sales Thousand PLN % of total revenue on sales Thousand PLN % of total revenue on sales Thousand PLN % of total revenue on sales Other income 30 916 0.2% 20 234 0.2% 10 659 0.2% 6 714 0.2% Sales revenue 15 166 841 100% Cost of own sales (13 235 299) 87% 10 950 875 (9 137 766) 100% 4 835 697 100% 3 690 586 100% 83% (4 255 070) 88% (3 141 138) Gross profit/(loss) 1 931 542 13% 1 813 109 17% 580 627 12% 549 448 15% Other operating income 65 911 0.4% 72 385 1% 21 453 0.4% 19 742 0.5% Cost of sales (126 055) 1% (165 523) 2% (26 344) 0.5% (56 309) 2% General and administrative expenses (483 462) 3% (490 283) 4% (174 890) 4% (149 663) 4% Other operating costs (66 996) 0.4% (101 760) 1% (17 984) 0.4% (18 041) 0.5% Operating profit /(loss) 1 320 940 9% 1 127 928 10% 382 862 8% 345 177 9% Operating profit margin (%)* 8.7% 10.3% 7.9% 9.4% Finance revenue 83 262 0,5% 65 133 0.6% 28 441 0.6% 21 350 0.6% Finance cost (122 003) 1% (147 481) 1% (44 508) 1% (42 405) 1% Share in profit of the affiliates (727) 0% 0 0% (188) 0% 0 0% Gross profit /(loss) 1 281 472 8% 1 045 580 10% 366 607 8% 324 122 9% Gross profit margin (%)* 8.4% 9.5% 7.6% 8.8% Income tax (261 116) 2% (220 516) 2% (74 198) 1% (72 019) 2% Net profit (loss) on continuing operations Profit (loss ) on discontinuing operations Net profit (loss) for the period 1 020 356 7% 825 064 8% 292 409 6% 252 103 7% 1 020 356 7% 825 064 8% 292 409 6% 252 103 7% Net profit margin (%)* 6.7% 7.5% 6.0% 6.8% Other comprehensive income for the period following deduction of tax 769 (10 080) 618 (3 692) Total revenue for the period 1 021 125 814 984 293 027 248 411 Profit attributable to: Shareholders of the parent company 994 504 7% 701 598 6% 290 471 6% 219 831 6% Non-controlling interests 25 852 0.2% 123 466 1% 1 938 0% 32 272 1% Total income attributable to: Shareholders of the parent company 995 273 7% 692 998 6% 291 089 6% 216 661 6% Non-controlling interests 25 852 0.2% 121 986 1% 1 938 0% 31 750 1% EBIT and EBITDA EBIT 1 320 940 9% EBITDA 2 370 719 16% 1 127 928 2 159 492 85% 10% 382 862 8% 345 177 9% 20% 735 841 15% 689 573 19% * Margins of operating profits, gross profit and net profit for Q I-III of 2011 calculated against the corresponding level of sales revenue of the same period of the previous year (excluding the compulsory sales of the generated electric energy through power exchange, resulting from the amendment to the Act on Energy Law ) would be similar to those reached in previous year, amounting to: 11.1%; 10.8%; 8.6%, respectively. The comparable EBITDA margin would reach 20.0%, i.e. it would stay at the level comparable to the corresponding period of the previous year As compared to the corresponding period of 2010, the TAURON Capital Group reached higher revenue on sales in all operating segments, excluding the Other segment (values at comparable level). The 16
highest dynamics of revenue increase was observed in the Segments of RES (significant increase particularly in the third quarter of 2011), Generation and Trade. The growth of revenue on sales of over 38% achieved by the Group in the current period, as compared to the period of Q I-III of 2010, is associated with the obligation to conduct sales of the electric energy by the generators through power exchange - sales value makes about PLN 3,297 million (almost 22%). Taking this fact into account and bringing the data to comparability, (in the period of Q I-III of 2010, sales of electric energy from the Generation Sector was subject to exemption within consolidation of revenue of the Group - almost all the volume of the generated electric energy was sold within the Group), the increase in revenue would reach 8.4%. Increased costs of operations are related to the increased sales volume, particularly in case of electric energy. Within the companies of the Group, activities aimed at optimisation of permanent costs are implemented. Lower dynamics of cost growth was reflected in improvement of EBIT and EBITDA indicators as well as net profit. The net profit margin for the period of Q I-III 2011 under comparable conditions reached the level of 8.6%, i.e. the result higher than in the corresponding period of the previous year (7.5%). 3.1.2. Financial results according to areas of operations The table below shows the results of the TAURON Capital Group divided into individual areas (segments) of operations for the period of Quarters I-III of 2011 and for the third quarter of 2011, against 2010. Data for individual segments do not cover exclusions due to consolidation. Specification (thousand PLN) Q I-III 2011 Q I-III 2010 Q III 2011 Q III 2010 Coal mining Revenue on sales 961 184 808 644 308 808 288 692 Operating profit 48 316 7 805 3 549 2 920 Amortisation and non-finance assets write-downs 76 410 80 542 23 684 24 979 EBITDA 124 726 88 347 27 233 27 899 Generating electric energy and heat from conventional sources Revenue on sales 4 649 837 4 074 097 1 469 790 1 362 099 Operating profit 484 065 526 900 106 859 165 729 Amortisation and non-finance assets write-downs 425 450 409 882 147 467 138 450 EBITDA 909 515 936 782 254 326 304 179 Generating electric energy from renewable sources Revenue on sales 151 075 120 464 57 943 43 857 Operating profit 93 404 65 566 37 493 22 996 Amortisation and non-finance assets write-downs 18 203 17 302 6 167 7 149 EBITDA 111 607 82 868 43 660 30 145 Distribution of electric energy Revenue on sales 3 412 343 3 324 811 1 102 067 1 095 861 Operating profit 521 440 365 761 183 883 138 261 Amortisation and non-finance assets write-downs 489 517 481 151 162 870 159 473 EBITDA 1 010 957 846 912 346 753 297 734 Trade of energy and other products of the energy market Revenue on sales 9 982 815 8 693 224 3 198 400 2 853 171 17
Specification (thousand PLN) Q I-III 2011 Q I-III 2010 Q III 2011 Q III 2010 Operating profit 210 625 205 563 69 884 39 804 Amortisation and non-finance assets write-downs 7 047 5 477 1 775 1 937 EBITDA 217 672 211 040 71 659 41 741 Other Revenue on sales 403 920 405 417 86 353 89 096 Operating profit 20 124 14 825-1 795-2 748 Amortisation and non-finance assets write-downs 33 152 37 210 11 016 12 408 EBITDA 53 276 52 035 9 221 9 660 Non-attributable items and exemptions EBITDA -57 034-58 492-17 011-21 785 Total EBITDA 2 370 719 2 159 492 735 841 689 573 Coal mining During the three quarters of 2011 the revenue on sales of the Mining Segment amounted to approx. PLN 961.2 million and it was higher by almost 19% as compared to the revenue reached in the three quarters of 2010 (about PLN 808.6 million ). In the third quarter of 2011, the total revenue on sales of the Mining Segment amounted to PLN 308.8 million which indicates increase by almost 7% as compared to the corresponding period of 2010 when the sales of the Mining Segment reached the level of about PLN 288.7 million due to unfavourable mining and geological conditions. The achieved growth of revenue results from the increase of volume and increase of average price of coal. EBIT of the segment during the three quarters of 2011 reached the level of about PLN 48.3 million (PLN 7.8 million in a corresponding period a year ago) while the EBITDA reached approx. PLN 124.7 million (approx. PLN 88.3 million respectively). EBIT of the segment in the third quarter of 2011 amounted to approx. PLN 3.5 million and EBITDA to over PLN 27.2 million. In the same quarter of the previous year, EBIT reached the value of approx. PLN 2.9 million and EBITDA reached almost PLN 27.9 million. The low level of EBIT and EBITDA noted in Q III of 2011 (as compared to Q III of 2010, the result is only slightly better) is the consequence of temporary occurrence of unfavourable mining and geological conditions (increased inflow of groundwater, difficulties in maintenance of ceiling in one of extraction walls), which affected the slowdown in reaching the full production capacity. As a result of failure to achieve the target level of extraction, due to decreased efficiency of one of the mining plants, production and sales of coal is lower. Generating of electric energy and heat from conventional sources During the three quarters of 2011, the revenue on sales of the Generation Segment amounted to approx. PLN 4,649.8 million and it was higher by over 14% as compared to the revenue reached in the comparable period of 2010 (about PLN 4,074.1 million). In the third quarter of 2011, the total revenue on sales of the Generation Segment amounted to PLN 1,469.8 million which indicates increase by about 8% as compared to the 3 rd quarter of 2010. Increase in revenue results mainly from the growth in electric energy volume of sales, following the increased demand of domestic consumers as well as higher average sales price. Trades concluded at the Power Exchange, particularly the SPOT transactions, had the highest impact on the increased sales revenue of the Generation Segment, owing to favourable trends in the scope of the offered prices. On the other hand, the revenue on compensation of stranded costs resulting from termination of LTC was lower than in Q I-III of 2010, which is mainly attributed to the achievement of higher result on electric energy. During the three quarters of 2011, EBIT of the segment reached about PLN 484.1 million while EBITDA amounted to approx. PLN 909.5 million, which means that the results were lower, as compared to the corresponding period of the previous year, by 8.1% and 2.9%, respectively (EBIT in Q I-III of 2010 reached PLN 526.9 million while EBITDA was at the level of approx. PLN 936.8 million). 18
Worse results achieved in the first three quarters of 2011 as compared to the first three quarters of 2010 are a result of lower revenues from sales of heat and certificates of origin, as well as higher variable costs of generation related to increased production of electric energy at units of lower capacity due to, among others, OSP (Transmission System Operator) enforcement. EBIT of the segment in the third quarter of 2011 amounted to approx. PLN 106.9 million while EBITDA reached approx. PLN 254.3 million. In the corresponding period of the previous year, EBIT amounted to PLN 165.7 million and EBITDA to PLN 304.2 million. The worse results of the third quarter of 2011 (decrease of EBIT level by almost 35% and EBITDA by over 16%) are mainly caused by the increase of variable costs of electric energy generation related to increased production of electric energy at units of lower capacity due to, among others, OSP enforcement and lower supply of heat. Generating electric energy from renewable sources During the three quarters of 2011 the revenue on sales of the RES Segment amounted to approx. PLN 151.1 million and it was higher by about 25% as compared to the revenue reached in Q I-III of 2010 (about PLN 120.5 million). In the third quarter of 2011, the total revenue on sales in the RES segment amounted to PLN 57.9 million, indicating the increase by about 32% as compared to the third quarter of 2010 when the segment gained the revenue at the level of about PLN 43.9 million. The key factor influencing the results of the segment is the volume of electric energy production, significantly dependant on weather conditions. EBIT of the RES segment in the three quarters of 2011 reached about PLN 93.4 million while EBITDA amounted to PLN 111.6 million, being higher as compared to the corresponding period of the previous year - EBIT in Q I-III of 2010 reached about PLN 65.6 million while EBITDA amounted to about PLN 82.9 million. EBIT of the segment in the third quarter of 2011 amounted to approx. PLN 37.5 million while EBITDA reached approx. PLN 43.7 million, which means that, comparing to the corresponding period of the previous year, EBIT was higher by approximately 63% (the level reached in the previous year was PLN 23.0 million), while EBITDA was higher by almost 45% (the level of the 3 rd quarter of 2010 was approx. PLN 30.1 million). In spite of unfavourable hydrological conditions in the second quarter of 2011, the decrease in the level of sales was partly compensated by higher sales prices. Additionally, recognising of revenue from sales of property rights of certificates of origin had positive impact on the result of the RES segment while in the same period of 2010 this revenue was not considered (this revenue was attributed to the Trade segment, through valuation of property rights acquired from production in hydroelectric plants of the company TAURON Sprzedaż, which were redeemed by this company due to sales of electric energy to end users). Following separation of the organised part of enterprise from TAURON Sprzedaż to deal with generation of electric energy from renewable sources (hydroelectric plants), and takeover of these assets by TAURON Ekoenergia, i.e. since the 4 th quarter of 2010, the aforementioned revenue if attributable to the RES segment. Distribution of electric energy During the three quarters of 2011 revenue on sales in the Distribution segment amounted to approx. PLN 3,412.3 million which indicates increase by almost 2.6% as compared to the same period of 2010. In the third quarter of 2011 the achieved revenue on sales was at the level of approx. PLN 1,102.1 million, i.e. by 0.6% more than in the 3 rd quarter of the previous year when the revenue reached approx. PLN 1,095.9 million. Higher revenue on sales results mainly from increased volume of supply services. In the period of quarters I-III of 2011, EBIT of the segment amounted to approx. PLN 521.4 million (in the third quarter of 2011 approx. PLN 183.9 million), as compared to approx. PLN 365.8 million in the corresponding period of the previous year (in the third quarter of 2010 approx. PLN 138.3 million). EBITDA of the Distribution Segment reached the level of PLN 1,011.0 million (in the third quarter of 2011 almost PLN 346.8 million), which represents the value higher by PLN 164.0 million, i.e. by about 19% than the value reached in Q I-III of 2010 (as compared to the 3 rd quarter of 2010 by PLN 49.0 million, i.e. by almost 16.5%). The dominating factors contributing to the result achieved included: increased sales of other services related to distribution, including increased revenue on fees for connecting to the network, as well as lower energy consumption for the needs of balancing differences. 19
Sales of energy and other products of the energy market During the three quarters of 2011, the revenue on sales of the Trade Segment amounted to approx. PLN 9,982.8 million, being higher by almost 15% than the revenue reached in the corresponding period of 2010 (about PLN 8,693.2 million). In the third quarter of 2011, the total revenue on sales in the Trade segment reached PLN 3,198.4 million which indicates the growth by about 12%, as compared to the corresponding period of 2010 when the level of revenue on sales amounted to approx. PLN 2,853.2 million. It is the result of increased sales due to growing demand for electric energy of the existing consumers, in particular in the tariff group B as well as C2x and C1x, and it can also be attributed to acquisition of new consumers of electric energy by the TAURON Capital Group within the separated contracts. Surrenders of clients were also lower, particularly in tariff groups C1x. EBIT of the segment in Q I-III of 2011 reached approx. PLN 210.6 million (in the 3 rd quarter of 2011 approx. PLN 69.9 million), while EBITDA amounted to approx. PLN 217.7 million (in the third quarter of 2011 PLN 71.7 million). In the corresponding period of the previous year, EBIT amounted to approx. PLN 205.6 million (in the third quarter of 2010 PLN 39.8 million), while EBITDA reached PLN 211.0 million (in Q III of 2010 approx. PLN 41.7 million). The comparable (managerial) value of EBIT and EBITDA for the period of Q I-III of 2010 would have been lower by PLN 53.1 million the valuation of property rights of certificates of origin acquired from RES production of TAURON Sprzedaż company, subject to redemption, had positive impact on the result the Trade Segment in this period. After separation of the generation segment of this company and merger with the company TAURON Ekoenergia (RES Segment), the revenue on sales of certificates of origin is attributable to the RES Segment. Consequently, the level of EBIT and EBITDA for the first three quarters of 2011 is similar to the level reached in Q I-III of 2010. The results of the segment are under significant influence of the Group sales policy, focusing on acquisition of the growing number of clients and maintaining of existing clients through preparing of the best available offers, often based on reduction of margin for individual groups of clients. During the analysed period, contracts with key accounts were renegotiated, and loyalty actions for mass clients were conducted. As a consequence of the increased volume of electric energy sales, costs of energy purchase increased, and the average purchase price was also slightly higher. The reason for increase in electric energy prices at the futures market was mainly the situation at the European market of energy and CO 2 emission allowances trade following the events in Japan involving the accident in the nuclear power plant as well as the decision of Germany to suspend operations of nuclear power plants partially. Since the first quarter 2011, presentation of unallocated costs has changed, within which general administrative costs of the dominating entity are recognised. Such costs are incurred on behalf of the whole Group and they cannot be allocated to one operating segment. According to the changed principles presentation of unallocated costs, data for the comparable period were also transformed. Other activity In Q I-III of 2011, the total revenue on sales in the Segment Other reached approx. PLN 403.9 million, which means the growth by about 0.4%, as compared to the corresponding period of 2010. In the 3 rd quarter of 2011, the revenue on sales at the level of approx. PLN 86.4 million was achieved, i.e. by about 3% less than in the third quarter of 2010 when the revenue amounted to approx. PLN 89.1 million. The sales of products of Kopalnia Wapienia Czatkowice had predominant impact on the growth of revenue. In the heat generating companies of the Segment, slight decline of revenue occurred in spite of considerable decrease of the volume of heat sold the average prices of heat and heating power were higher than in the previous year. In Q I-III of 2011, EBIT of the segment reached approx. PLN 20.1 million (in the 3 rd quarter it was at the level of PLN - 1.8 million), while during the corresponding period of the previous year, it amounted to approx. PLN 14.8 million (in quarter III of 2010 - PLN 2.7 million). The level of EBITDA for the period of the Q I-III of 2011 amounted to approx. PLN 53.3 million (in the 3 rd quarter of 2011 approx. PLN 9.2 million), which makes the value higher by PLN 1.2 million, i.e. by 2.4% higher than the value reached in the corresponding period of 2010 (in relation to the Q III of 2010, deterioration by about PLN 0.4 million, i.e. by 4.6% occurred). The improved results can be attributed to the increase of highly profitable sales of the company Kopalnia Wapienia Czatkowice. In the heat 20